Growthpoint's diverse assets soften South African blows

Growthpoint Properties CEO, Norbert Sasse says "I’m satisfied with what we have achieved here given the many challenges facing the South African economy.”

Growthpoint Properties grew its distribution per share 6% in the six months to December as the company managed some challenging trading conditions.

The inclusion of the Acucap Sycom portfolio it bought last year put a strain on earnings. But this has exposed Growthpoint to some strong retail assets.

Today, the property group reported an increase in revenue of 28.7% from the prior half-year, with its distributable income up 24.3%. Its property portfolio increased in value by 10.1% and its net asset value per share grew by 6.1%, for the six-month period.

“I’m satisfied with what we have achieved here given the many challenges facing the South African economy,” says CEO Norbert Sasse.

Commenting on at the results presentation, Sasse said its South African property portfolio remained resilient, and there had been a strong performance from its V&A Waterfront investment and growing distributions from its 65% holding in Growthpoint Properties Australia (GOZ), together with favorable exchange rates for the company.

Over the period on average more than 155,4 million shares traded per month, with a monthly average value of R3.9bn. This made Growthpoint the most liquid and tradable way to own commercial property in South Africa.

The JSE-listed Reit owns a portfolio of 473 properties in SA, 57 properties in Australia and a 50% R7bn interest in the properties at V&A Waterfront, Cape Town. Growthpoint’s consolidated property assets are valued at over R110bn.

The Fund has a R4.2bn acquisition and development pipeline driving its immediate growth. It also recently announced its strategy to invest in commercial real estate in certain other African countries thereby creating a new growth area for the business.

Growthpoint has been included in the FTSE/JSE Responsible Investment Index (former JSE SRI Index) for seven consecutive years.

Ian Anderson, the chief investment officer at Grindrod Asset Management says Growthpoint was a strong, very well-managed company which traded on a better forward yield than many of its peers and close to the same forward yield as its old rival, Redefine Properties. Redefine’s forward yield is 8%, while Growthpoint’s is 8% and various Resilient group funds’ are about 4%.

Growthpoint produced strong metrics with vacancies falling to 4.9% from 6.4% a year earlier, 28.7% growth in gross revenue and its property portfolio climbing as much as10.1%. The group’s cost-to-income ratio also improved from 27.8% to 26.5%.

The group’s net asset value per share grew 6.1% during the six-month period. Its South African property portfolio contributed 76.7% to its distributable income.

It achieved renewal rental growth rates of 1.6% overall. Sasse says that in the current market, property net income performance is under pressure.

“This is reflective of it costing more to keep tenants in an intensely competitive environment,” he says.

It realized like-for-like property rental growth of 5.1% and has average in-force rental escalations of 8.1%.

The company disposed of R625.8m of properties during the reporting period. It acquired properties of R576m and made commitments of R2bn.

Distributions from its 50% stake in the V&A Waterfront, Cape Town, the most expensive commercial property asset in SA, contributed 8.1% to its distributable income.

“Net property income showed 12.2% growth and overall property vacancies improved, reducing by half to a low 1.3%. Its retail sales delivered 13% average year on year growth and its retail trading densities also saw strong growth at 11% for the period. Retail space at V&A Waterfront is fully let,” he says.

GOZ, Growthpoint’s Australian investment, delivered a 16.7% total AUD return for the 12 months to 31 December 2015. GOZ contributed as much as 14.8% to Growthpoint’s total distributable income.

During the period GOZ acquired properties valued at R1.3bn, invested R335m in development and capital spend, and committed to portfolio growth of R742m.

Growthpoint was still integrating the Sycom Acucap portfolio of assets. The company finalized the takeover of Acucap Properties and Sycom Property Fund last year which saw it acquire some R8.3bn worth of assets.

The deal however saw it take on some floating rate debt at very low yields meaning higher finance expenses were incurred in the reporting period, weighing on earnings, according to Anderson.